Most public sector banks on Monday said they will keep the base rate at around 8%. Significantly, banks are moving towards a base rate system for benchmarking interest rate, replacing the prime lending rate system. The new regime will start from July.
SBI chairman OP Bhatt said his bank would keep the base rate between 7.5% and 8.5% while Punjab National Bank CMD KR Kamath said it would be hover around 8-8.5%.
Even as banks change the benchmark rate, the effective rate of interest to existing borrowers will not change. It will be merely an adjustment of the rate structure. Indian Overseas Bank chief SA Bhat said the rate will be 8-9% in his bank. “The cost of deposits of most banks is around 5.75-to-6.75%. So, it is no wonder the base rate would be 8-9% for most banks,” Mr Bhat told ET.
Canara Bank chief AC Mahajan said the rate will be around 8-8.5%. Union Bank of India chief MV Nair offered a more narrow band of 8-8.25%.
Nevertheless, private banks are likely to keep the base rate lower than their public sector peers. Yes Bank MD & CEO Rana Kapoor said last week in Kolkata that private banks are likely to keep the base rate comparatively lower.
In the base rate guidelines, RBI told banks to take into account factors like cost of deposits and average return on net worth for base rate calculation. Banks can change the methodology within six months.
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